When dealing with California final pay laws, the details are where it gets tricky. For example, if an employee resigns with two weeks’ notice, normally you would have until the employee’s last day to provide the final paycheck—but what if you want to ask the employee to not work the notice period? When is the final paycheck due?
How should an employer handle a situation where a terminated employee has taken PTO or vacation time in advance (before it accrued) and already been paid for it even though it has not yet been earned? Can it be recouped from the final paycheck?
These were the types of questions fielded by Michelle Flores during a recent CER webinar. Read on for these answers and more.
California final pay laws: How much time to provide the final paycheck
Q. How much time do you have to pay the employee once they’re terminated?
A.In California, an employee who is terminated must be paid immediately—the day of termination.
Q. Did the law change such that employers previously had 72 hours to pay final paychecks, but now it is immediate? Or is it still 72 hours, but it’s merely recommended to pay immediately?
A.Labor Code section 201 indicates that if you terminate an employee you have to pay them immediately upon termination. There is a caveat for seasonal employees in the canning industry—employers who terminate seasonal employees in the canning industry do have 72 hours, but this is a very strict exception. If an employee resigns, on the other hand, the employer does have 72 hours to provide the final pay. But if terminating, it is usually immediately due.
California final pay laws: What if an employee owes money?
Q. In terms of loans, can you please address final pay and PTO that was “borrowed” (leave taken beyond their accrued or earned balance)? Are we allowed to collect the wages back?
A.In this situation, it is the equivalent of advancing them pay. Oftentimes the handbook might state that pay advances can be taken out of a final paycheck; however, I caution employers from doing that. My recommendation is to keep those advances at a minimum and to use these to your advantage if someone is leaving. In some circumstances, explaining that you’re not deducting it (and thus treating it as a gift to the employee with no expectation of repayment) may have more benefits to the employer than trying to recoup the money, and certainly less risks.
Q. In the case of forgiveness of advanced vacation/PTO time/pay, would you recommend we ask for a release of claims in exchange?
A.It depends. In that situation, it would depend on how well you’ve documented the advances, how much money is in question, and the documentation as it relates to the waiver. The concern is whether you’ve given appropriate consideration for that release—which truly depends on the circumstances at hand. It could be possible, but it would need to be substantial in amount, substantial in time, and fully documented. It would also need a separate sign off (they should have signed off somewhere that they acknowledged that they would owe this if they resigned before paying back the deficit).
California final pay laws: How to handle varying employee resignation notices
Q. If an employee in California provides a two week notice, but you do not want the employee to work the notice period and decide to release them early instead, do you need to have their final check on the day you release them—even if you’re paying them through their notice period?
A.The safest route is to pay them on the day you decide to ask them to not work, and to pay out the rest of their notice. I would pay them the day that you’re letting them go, because their employment is ending that day. And although they gave you notice of their intention to resign on a different day, if you say no, you’re actually terminating in advance of their anticipated end date. Since their employment is ending on that date, pay them on that date—regardless of whether you’re paying them through their notice period or not.
In fact, I would recommend that you pay through the notice period because not doing so could give rise not only for unemployment claims, but those claims could go beyond the resignation date as well. Why risk it—pay it on the day you say “thanks but no thanks” and pay it through their notice period of time. And document all of it clearly.
Q. If an employee gives a long notice, such as month, yet you let them go on the day they tell you they are planning to leave (because you know they will no longer be productive), should you pay through the full notice period, through a standard two weeks, or just let them go without notice?
A.This needs to be evaluated on a case-by-case basis. Without further details, it might be tough to justify the immediate termination. Without that person exhibiting the lack of productivity (i.e. if it is in fact just an impression that they’re not going to be giving it their all and you’re just trying to get them out of the environment), I recommend that you thank them for the notice and pay through the whole notice period. Even though this is a large payout, without it there could be a claim for that pay. For example, they claim that they thought that notice period was required. Also, they could file for unemployment and you’d probably have to pay that—and the unemployment could extend beyond that time.
Additionally, you’re sending the message to other employees that giving notice will be treated negatively, thus incenting them to no longer do so. Avoiding this last point alone may be worth the expense. Without knowing further details, I would pay it.
The above information is excerpted from the webinar “Final Pay Obligations in California: Tips for Minimizing Your Legal Risks When Employees Leave.” To register for a future webinar, visit CER webinars.
Michelle Lee Flores is a partner in the Los Angeles office of Fisher & Phillips LLP. She focuses her practice on all aspects of employment litigation including jury and bench trials; arbitration; mediation and pre-litigation negotiations; sex, race, religion, age and disability harassment and discrimination; wage and hour violations including class actions; and wrongful termination.
For an unpaid loan, if the employee had authorized you to deduct installment payments from his or her paychecks, you can deduct only a single installment payment from the last check. To recover the balance, you will have to act as any creditor would, such as through litigation.
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